GE Update On Capital Arm

General Electric attempted to quell market fears at an investor meeting Thursday.

Officials made every effort to draw a sharp contrast between GE's vast finance operations and commercial banks, whose exposure to exotic financial instruments and mortgage defaults have driven down banking shares to multi-year lows.

Company officials also noted that even in what it considers the riskiest portion of its real estate loan portfolio, some 92 percent of its customers are current in their payments and a large portion of the portfolio is supported by other guarantees.

The firm has also run extensive stress tests on GE Capital's portfolio and found that even in its worst-case scenario GE would not see itself needing to raise capital, Chief Financial Officer Keith Sherin said.

Despite attempts to paint a somewhat brighter picture the leadership hasn’t convinced Sterne Agee equity analyst Matthew Kelley who attended the meeting.

He told Fast Money he doesn’t think all the troubles at GE are fully baked into the stock’s price. “I still see a lot of leverage particularly on a risk adjusted basis,” he says.

If the stock’s price action on Thursday is any indication, Kelley isn’t alone. Shares of GE closed in negative territory.

What’s the bottom line? “I feel more informed but not less concerned.”

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In case you want more information, following is a complete synopsis of the meeting as reported by CNBC.com in conjunction with Reuters.

General Electric expects GE Capital to be profitable this year, though if the economy deteriorates more than the Federal Reserve currently estimates, the finance unit could post break-even results, executives said.

Stress-testing based on the Fed's baseline scenario for the economy shows profit could come to $2 billion to $2.5 billion this year, Michael Neal, the chief executive of GE Capital, said on Thursday.

"Even in the adverse case we're probably break-even to slightly profitable," Neal said.

GE officials made efforts to draw a sharp contrast between GE's vast finance operations and commercial banks, whose exposure to exotic financial instruments and mortgage defaults have driven down banking shares to multi-year lows.

GE is the parent company of CNBC and CNBC.com.

In December, the U.S. conglomerate had forecast that the GE Capital unit would earn about $5 billion in 2009.

Shares of the Fairfield, Connecticut -based company spacer rose on the New York Stock Exchange, reaching their best level since Feb. 13.

The company plans to use some of its $60 billion in capacity left under the U.S.-government backed Temporary Liquidity Guarantee Program to pre-fund debt due to mature in 2010, said Treasurer Kathy Cassidy.

The Federal Deposit Insurance Corp in October introduced a program to guarantee certain bank debt to boost confidence in the banking industry, add more liquidity and reduce the risk of bank runs.

The Temporary Liquidity Guarantee Program (TLGP) provides a government guarantee on certain senior unsecured debt, mandatory convertible debt, and on banks' transaction deposit accounts.

Stress Tests

The world's largest maker of jet engines and electricity-producing turbines has run extensive stress tests on GE Capital's portfolio and found that even in its worst-case scenario GE would not see itself needing to raise capital, Chief Financial Officer Keith Sherin said.

GE Capital, which has businesses ranging from investing in commercial real estate to financing sales of heavy equipment made by the U.S. conglomerate, last year recorded profit of about $8.6 billion, about 33 percent of the GE total.

Company officials noted that even in what it considers the riskiest portion of its real estate loan portfolio, some 92 percent of its customers are current in their payments and a large portion of the portfolio is supported by other guarantees.

It noted that just 1.5 percent of its real estate portfolio consisted of loans for construction of a new development—compared with an average of 32 percent for commercial banks.

The company plans to operate all of its properties over the long term, said Ron Pressman, president and CEO of GE Real Estate.

"We buy assets in our equity business, we take over assets in our debt business if need be, and we run them like a factory," Pressman said. He added that GE does not mark up real estate assets in robust markets, but it does depreciate assets each year.

Because the company does not use debt to fund most real estate investments and does not mark up the value of its properties—instead depreciating them by 3 percent per year—it has not had to write down the value of its property investments to the degree that many real estate funds have, GE executives said.

Real Estate Losses

The U.S. government has launched a stress test program that will assess banks' ability to cope with worse-than-expected financial conditions, to determine how much additional capital banks may need.

Economists at the Fed have established a 'baseline' scenario that calls for the U.S. economy to contract by 2 percent this year, with a rebound in 2010, and assumes 8.4 percent unemployment. The Fed's 'adverse' scenario calls for a 3.3 percent economic contraction and 8.9 percent unemployment.

GE said that based on stress-testing using the Federal Reserve's baseline scenario for the U.S. economy, it would expect $900 million in losses against loans at its GE Real Estate portfolio, representing an implied default rate of 8 percent.

Assuming the Fed's adverse case for the economy, that number would rise to $1 billion, or an implied default rate of 10 percent. Its current implied default rate is 1.01 percent, said Jayne Day, of GE Real Estate.

Concerns over how well GE Capital is reserved against an expected rise in defaults, as the slumping economy makes it harder for consumers and businesses to pay back loans, have hammered the company's shares. GE's stock is down about 71 percent over the past year, a steeper slide than the 38 percent fall of the Dow Jones industrial average.

GE last month cut its dividend by 68 percent in a move to conserve cash. As of March 10, it had raised $40 billion of the $45 billion it had planned to seek on debt markets in 2009.

Standard & Poor's last week stripped GE of its "AAA" credit rating. Some investors took its one-notch cut as a sign that there were no major surprises lurking in GE Capital.

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Trader disclosure: On Mar. 19th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour Owns (AA), (BAC), (EEM), (FXI), (VIP), (TS); Seymour's Firm Owns (PBR); Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Macke Owns (GE), (SDS), (MOS); Macke Is Short (BRK.b); Najarian Owns (C) Call Spread; Najarian Owns (GDX); Najarian Owns (GD) Call Spread; Najarian Owns (GLD) Put Spread; Najarian Owns (MS) & (MS) Calls; Najarian Owns (MSFT) & (MSFT) Calls; Najarian Owns (TGT) Call Spread; Najarian Owns (WFC) & (WFC) Puts; Najarian Owns (XHB) Call Spread; Najarian Owns (MCD) Calls

CNBC.com with wires